Which of the following describes a perfect hedge? (Select all that apply) Select one or more:...

Which of the following describes a perfect hedge? (Select all that apply)

Select one or more:

a. Its a financial transaction that offsets all risks in a contract

b. It doesn't exist in reality.

c. The loss in one asset will be completely offset by the gain in the other asset.

d. Correlation Coefficient is +1

Solutions

Expert Solution

A,B and C

A True

A perfect hedge is one which eliminates all risks.

B: True

In reality it is impossible to construct a perfect hedge

C: True

In a perfect hedge, the losses possible are completely covered by the gains from the other assets.

D: False

In a perfect hedge the correlation coefficient is -1.

jeff jeffy answered 1 year ago

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